Technical Outlook: EURUSD broke below a critical support confluence last month at 1.1679- ‘a region defined by the lower median-line parallel, the 23.6% retracement of the 2017 range and the 100-day moving average.’ The subsequent decline has taken out our initial support targets with price rebounding yesterday of the head & shoulders measured move at 1.1554.

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Daily momentum divergence suggests the immediate short-bias may be at risk here but the broader focus remains weighted to the downside while below confluence median-line resistance ~1.1780s. A break lower from here targets the 2016 high-day close at 1.1495 backed by a critical support confluence at 1.1400/23.

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EUR/USD 240min Chart

Notes: A closer look at near-term price action highlights a precise rebound off the 1.1554 target yesterday with initial resistance eyed at 1.1616 backed by our near-term bearish invalidation level at monthly open at 1.1646. A breach / close above this threshold would suggest a larger recovery is underway with such as scenario targeting objectives at 1.1725and critical resistance at 1.1788.Bottom line: the immediate risk is for some near-term recovery but ultimately, I’d be looking to fade strength while below the median-line.

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A summary of IG Client Sentimentshows traders are net-short EURUSD- the ratio stands at -1.53 (39.5% of traders are long) – bullishreading

Long positions are 2.8% higher than yesterday and 12.9% higher from last week

Short positions are 4.2% lower than yesterday and 6.8% higher from last week

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week andrecent changes in sentiment warn that the current EURUSD price trend may soon reverse lower, despite the fact traders remain net-short.

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— Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.